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Days After Greek Credit Rating Dropped to Worst in World Over Likely
Default, Crisis Boils Over

Everyone seemed to know this was coming, and most were somewhat shocked that it had taken this long to manifest. The decades of mismanagement placed Greece in a position where no government could survive. The latest attempt to get control of the economy with another round of austerity measures was the final straw for the unions, and the riots started. Within hours they became violent as tens of thousands of angry demonstrators took out their frustration on the police. There is nothing to suggest this ferment will end any time soon. The society of Greece is utterly broken, and it is not at all clear that anything can fix the underlying issue.

This is what has the financial community in a panic. There appear to be no good options left for the Greeks. The public wants an end to these austerity plans and a return to the good old days. This is the Greece that doesn’t pay its taxes, where union members work 10 months and get paid for 14 and where people retire with full pay and benefits at 55. This is the Greece that lived off debt and the largesse of others, and this is the Greece that can no longer be sustained.

Fears regarding the impact that this Greek collapse will have on the rest of Europe and the world caused the markets to swoon this week, and there will be more carnage to follow. The yields on Greek debt have reached levels not seen outside sub-Saharan Africa, and that has caused the yields of other nations to rise to astronomical levels as well. The price-per-barrel of oil stumbled by more $6 within one day, and the euro slipped by 1.9% against the dollar, marking its biggest decline in years.

There remains a very slim chance that Greece can be rescued if the Germans and the European Central Bank reach agreement on the terms of a bailout. If there is no rescue, the Greeks run out of money in less than a month. It is at this point that the crisis deepens fast.

Greece likely will default and the financial pain will spread like wild fire. Many of the European banks are heavily exposed to Greek debt, and their solvency will come into question. Governments will lose money as well. The Greeks are very likely to bolt from the European Union altogether so they can drastically devalue their currency and try to survive at the expense of their neighbours. If they leave there will be others that will follow, renewing doubts about the euro zone.

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